On the whole the budget announcements were positive for the property and construction sector. Whilst an inevitable increase in the rate of corporation tax was announced, this was balanced by an extension to the SDLT holiday and a raft of spending measures aimed at improving the UK’s infrastructure. A supporting document published alongside the Budget called Build Back Better: Our Plan for Growth confirmed that “the government wants the UK to have the most efficient, technologically advanced and sustainable construction sector in the world”, demonstrating its intention to invest heavily in the industry over the next few years.
Key measures that will impact the sector are considered below:
Corporation tax rates
As many had speculated, an increase in the main rate of corporation tax from 19% to 25% was announced. However, this increase will not come into force until 1 April 2023, giving businesses time to recover from the impact of Covid-19. The higher tax rate will not apply to all businesses and a tapering system will apply where businesses with taxable profits of less than £50,000 will still pay tax at 19% and the full 25% rate will only apply to businesses with taxable profit of £250,000 or more.
Whilst increased corporation tax rates are disappointing, smaller businesses will be somewhat protected by the tapering system and overall the UK will still have the lowest corporation tax rate in the G7.
Our pre-budget predictions for the property and construction sector recommended an increase in capital allowances to help stimulate spending on construction and fit out projects by private businesses. The announced 130% super-deduction for spending on plant and machinery exceeded our predictions.
From 1 April 2021 to 31 March 2023, companies investing in new qualifying plant and machinery will be able to claim a 130% first-year capital allowance, meaning that business’s taxable profits will be reduced by more than the cost of the purchased items. A 50% first year allowance will also be available for qualifying special rate items such as fixtures and fittings and long life assets.
These allowances will particularly benefit construction companies that invest in high-value machinery but may also encourage businesses to re-fit their offices to accommodate social distancing and new remote working trends post-Covid.
A further welcome announcement was a temporary extension to the trading loss carry back rules from one year to three years. Companies and unincorporated businesses incurring trade losses in 2020-21 and 2021-22 will be able to carry these back to relieve tax paid on profits in the previous three years in order to get a tax refund. This carry-back will be subject to a cap of £2 million, which for corporate groups will need to be shared across the group as a whole.
This measure will particularly benefit construction and property development companies that have suffered losses as a result of Covid-19 and for some businesses will be a welcome boost to cash-flow. Unfortunately, property investors will not be able to benefit from the new measures.
It had been widely predicted that the current SDLT holiday would be extended beyond 31 March 2021 and this extension was confirmed. The temporary £500,000 nil rate band will remain in force until 30 June 2021 and will then decrease to £250,000 until the 30 September 2021. After this the nil rate band will return to its normal, pre-Covid level of £125,000.
The extension will be welcome news for anyone that was trying to complete purchases before 31 March and should help to keep the property market buoyant over the next few months. The knock on effect should be increased SDLT receipts for the government and additional revenues for businesses that support property sales.
Spending and other measures
In addition to the above tax measures, the government has committed to various spending and investment programs to support improvements to the UK’s infrastructure. A new UK Infrastructure Bank will provide financing to support private sector and local authority infrastructure projects and a £4.8 billion Levelling Up Fund will invest in projects such as high street and town centre regeneration and local transport projects, among others.
The spending measures should boost the economy and provide work for private sector property and construction companies across the UK.